Goldman Sachs Changed for the Worse!

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WASHINGTON, D.C. -- Former Federal Reserve Chairman Paul Volcker said on Wednesday that Greg Smith, the former Goldman Sachs executive director who dramatically announced his resignation in a New York Times op-ed, is right that Goldman Sachs has changed for the worse over the past decade.

Volcker, who served as an economic adviser to President Obama, said at The Atlantic's Economy Summit in Washington, D.C., that when Goldman Sachs went public in 1999, it "became a trading operation," which hurt clients and the economy at large.

"That changed the mentality, I'm afraid," Volcker said about Goldman Sachs. "It's a business that leads to a lot of conflicts of interest."

Smith wrote in his op-ed on Wednesday that he is quitting because over the past 12 years, Goldman Sachs has become too concerned with maximizing profits often at the expense of its clients.

At the conference, Volcker said that Wall Street's general shift toward speculation in the early 2000s damaged the economy.

"These were brilliant years for Wall Street from one perspective," Volcker said. "Were they brilliant years for the economy? Well, there's no evidence of that."

Volcker pointed out that as banks profited, workers did not become more productive, and there was "virtually no increase" in average household income when adjusted for inflation. This led to an "imbalanced economy," he said.

The existence of $60 trillion in credit default swaps globally to insure $6 trillion of global debt during the financial crisis "suggests there was something going on here that didn’t have a connection to the real economy," Volcker said. It was "like a casino," and "when the system came under pressure, it collapsed," he said.

The languishing of the economy during the early 2000s as the financial industry profited is evidence supporting the Volcker rule, the controversial part of the Dodd-Frank financial reform legislation that prohibits banks from trading with their own money, Volcker said.

"I hope reform will make a little progress and do a little rebalancing of incentives in the financial system," Volcker said. He hopes that financial reform will spur commercial banks to return to the "old-fashioned concerns" of taking care of customer deposits, he added.

This is not the first time that Volcker has spoken out about Goldman. A 1998 New York Times story about Goldman Sachs' making millions off the Russian government included this comment: "Today's bankers often don't have long-lasting concerns about customer-client relations,'' said Volcker, who was an occasional adviser to Russian government officials. ''You just do the deal and get out.''

Goldman Sachs exec Greg Smith quits, saying environment at firm is 'toxic'
By Patrick Rizzo
In a very public and scathing resignation letter, Goldman Sachs executive director Greg Smith has called the atmosphere at the massive investment bank "as toxic and destructive as I have ever seen it."
"Today is my last day at Goldman Sachs," wrote Smith, who was the head of the firm's U.S. equity derivatives business in Europe, the Middle East and Africa, in an Op-Ed in the New York Times on Wednesday titled "Why I am Leaving Goldman Sachs."
Smith, who is based in London and has been with Goldman for 12 years, went on to describe what he says is a deteriorating culture at Goldman Sachs where clients are called "muppets" and their interests are given short shrift.
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"The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for," Smith wrote.
Smith blamed the culture shift on chief executive Lloyd Blankfein and president Gary Cohn. "I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival," Smith wrote.
"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,' sometimes over internal e-mail," wrote Smith, who says he went to Stanford University on a full scholarship, was a finalist for a Rhodes Scholarship and won a bronze medal for table tennis at the Maccabiah Games in Israel.
In an emailed statement, Goldman Sachs, said, “We disagree with the views expressed, which we don’t think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”
So far, msnbc.com hasn't been able to track Smith down for a comment, but the Wall Street Journal, quoting a person familiar with the matter, said Smith is a vice president, which is a common title on Wall Street, even among junior staff.

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
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Victor Kerlow
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A Public Exit From Goldman Sachs Hits at a Wounded Wall Street (March 15, 2012)
Goldman Sachs Responds
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To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Public Rebuke of Culture at Goldman Opens Debate
BY SUSANNE CRAIG AND LANDON THOMAS JR.

Greg Smith, the Goldman Sachs London-based executive director who resigned on March 14, 2012.
Until early Wednesday morning, Greg Smith was a largely anonymous 33-year-old midlevel executive at Goldman Sachs in London.

Now everyone at the firm — and on Wall Street — knows his name.

Mr. Smith resigned in an e-mail message to his bosses at 6:40 a.m. London time, laying out concerns that Goldman’s culture had gone haywire, putting its own interests ahead of its clients.

What the e-mail didn’t say was that about 15 minutes later, an Op-Ed article he had written detailing his criticisms was to be published in The New York Times. “It makes me ill how callously people still talk about ripping off clients,” he wrote in the Op-Ed article.

The Op-Ed landed “like a bomb,” inside Goldman, said one executive who spoke on the condition of anonymity.

The article reignited a debate on the Internet and on cable television over whether Wall Street was corrupted by greed and excess. By noon, television crews crowded outside Goldman’s headquarters in Lower Manhattan. More than three years after the financial crisis, the perception that little has changed on Wall Street — and that no one has been held accountable for the risk-taking that led to the crisis — looms large in the public consciousness. While it was an unusual cry from the heart of a Wall Street insider, many questioned whether it would prompt any change.

Goldman disagreed with the assertions in the Op-Ed article, saying that they did not reflect how the firm treated its clients. Top executives have previously said that despite some rough times of late, clients have stuck with the firm.

Friends of Mr. Smith, who had a list of Goldman’s business principles taped on a wall by his computers in London, say they were not surprised by his public farewell. “He has a really high moral fiber and really cared about the culture of the firm,” said Daniel Lipkin, a Miami lawyer who went to Stanford with Mr. Smith. Mr. Lipkin learned about the Op-Ed on Wednesday from Mr. Smith. “He sounded confident and felt good about his decision to go public,” he said.

Op Ed Contributor: Why I Am Leaving Goldman Sachs
A Public Exit From Goldman Sachs Hits at a Wounded Wall Street
Although he isn’t highly paid by Wall Street standards — earning about $500,000 last year, according to people briefed on the matter — Mr. Smith is part of what some Goldman staff members and alumni refer to as a sizable, yet silent contingent within the investment bank. These people are increasingly frustrated with what they see as a shift in recent years to a profit-above-all mentality.

Evidence of this shift, they say, can be seen in the accusations brought by the Securities and Exchange Commission in 2010 that the firm intentionally duped certain clients by selling a mortgage-security product that was designed by another Goldman client betting that the housing market would crash. More recently, a Delaware judge criticized Goldman over the multiple, and potentially conflicting, roles it played in brokering an energy deal. (In both cases, Goldman has denied any wrongdoing.)